Throughout his career and especially in his later years, Warren Buffett became extremely attuned to existential risks to the economy and Berkshire Hathaway‘s (BRKA +0.32%) (BRKB +1.29%) business. Buffett’s philosophy has long been that he would run Berkshire Hathaway as if investors had all of their savings invested in Berkshire stock. That means protecting Berkshire from “1-in-100-year” risks to the greatest extent possible.
One thing that can seriously upset markets, and potentially Berkshire’s business, is a severe oil shock due to geopolitics. We are currently seeing this right now amid the war in Iran and the subsequent blocking of the Strait of Hormuz.
The current state of negotiations between the U.S. and Iran is tenuous, and oil prices have spiked from below $60 at the beginning of the year to $93 per barrel as of this writing, even despite releases from the U.S. Strategic Petroleum Reserve.
Fortunately, Buffett’s holding of Occidental Petroleum (OXY +0.32%), in which Buffett first invested in 2019, stands to uniquely benefit from persistently higher oil prices, offsetting the shock. And though the stock is up this year, it’s nowhere near expensive should oil prices remain persistently high.
Today’s Change
(0.32%) $0.18
Current Price
$57.23
Key Data Points
Market Cap
$56B
Day’s Range
$57.14 – $57.73
52wk Range
$38.72 – $67.45
Volume
71K
Avg Vol
17M
Gross Margin
31.94%
Dividend Yield
1.72%
Occidental Petroleum is a prime beneficiary
Buffett likely chose Occidental as one of his two major oil and gas investments due to its deep inventory in the United States, especially in the Permian Basin of West Texas.
Overall, Occidental has over 30 years of inventory, 88% of which is in the United States, with 84% breaking even at under $50 per barrel, and a significant portion of those under-$50 reserves costing less than $30 per barrel.
Occidental’s geographic position, with its reserves, positions it to withstand and ultimately benefit from oil shocks abroad.
Occidental is also highly sensitive to oil prices, even more so than other oil and gas majors. This is due to two reasons. First, many large-cap oil and gas plays have various midstream, chemical, and downstream refining arms, which mostly operate on volumes and spreads. However, Occidental is mainly focused on pure upstream oil and gas exploration and production, especially after selling its OxyChem chemicals business to Berkshire in January.
Second, Occidental carried a high debt load following its acquisitions of Anadarko in 2019 and CrownRock in 2023. While Occidental had done a good job of chipping away at that debt since CrownRock closed, it still had $20.4 billion in debt at year-end 2025.
Following the divestiture of OxyChem, total debt is now expected to fall another $5.4 billion to $15 billion. But Occidental may now accelerate those debt reduction plans further, given the recent profit windfall from higher oil prices.
In a recent presentation, Occidental said its cash flow increases by $265 million for every $1-per-barrel increase in oil prices. Last year, Occidental realized an average $64.60 in oil prices and generated $4.3 billion of adjusted non-GAAP (generally accepted accounting principles) free cash flow. Management had also outlined an additional $1.2 billion cash-savings plan for 2026, not factoring in any additional oil price increases.
If, however, Occidental realizes, say, $84.60 per barrel in 2026 — which is actually lower than the current price — that would add $5.3 billion in cash flow this year.
Image source: Getty Images.
The one-time spike de-risks Occidental
Adding the cost savings and higher oil prices to last year’s free cash total, Occidental could generate close to $10 billion in cash flow this year, should oil prices stay elevated. That could bring the company two-thirds of the way to retiring all its debt, or Occidental could switch to returning cash to shareholders via share repurchases or increased dividends.
At just $56.5 billion in market cap, Occidental’s stock still looks like a solid value, even if oil prices retreat to last year’s levels after the current “surge.” And if the war drags on and oil prices stay higher for longer, the stock still looks incredibly cheap.
